Factors to Consider When Your Home is a Part of Your Retirement Plan

For decades, buying a home has been a part of the “American dream.” Historically, homeowners have been viewed as financially secure, and it’s the dream of many young families to own a home and build wealth through equity and appreciation. If you’re looking at the long-term picture, there’s nothing wrong with thinking of your home as a factor in your retirement plan. However, if you are planning to use your home as a component in your retirement plan, you’ll need to keep a few things in mind to preserve your investment.

Preserve Equity and Avoid Draining Your Asset
If you’re counting on your home as a factor in your retirement plan, you need to resist the urge to move too frequently. Every time you move, you’ll pay anywhere between 8 and 10 percent of the sales price of your home in commission and moving expenses. If you’re trying to build long-term equity, each of these transactions will cost you dearly in the long-term.

Additionally, if you’re planning to utilize your home’s equity as a part of your retirement plan, you need to avoid cashing out that equity in the form of a home equity loan or line of credit. The only exception to this rule is if the money is being invested back in the house – if it adds value, or helps to preserve value, the cash out in equity can be justified. If you’re using it to pay for vacation, help defray college costs or to finance other big short-term expenses, you’ll be creating a long-term problem for your retirement plan.

Ultimately, owning a home can be a valuable form of “forced savings.” Merely by owning the home, you’re turning your mortgage payment into a long-term savings account that builds equity in your home. However, if you take money out of that account while you own the home, you’ll be diluting your equity and potentially damaging your retirement asset. Think about the long-term plan whenever you move or take equity out of your home, and make sure your decisions don’t hurt your retirement plan.